6 types of insurance, explained

September 21, 2023

Allworth Co-CEO Scott Hanson breaks down the essential must-knows about the most common types of insurance policies.

Convincing yourself, or someone you love, to purchase something you may never actually need is sometimes difficult to reconcile with your logical left-brain self.

Partnering with a good financial advisor, a 100% fiduciary who either doesn’t sell insurance, or whose motivation isn’t beholden to a commission for recommending a particular insurance product, can be a great way to assess the types of insurance you need, and whether your level of coverage is sufficient for your personal financial situation and risks.

Which various kinds of insurance are essential, situational, or probably not worth the money? While that depends on your circumstances, here are six essential types of insurance explained.

Homeowners Insurance

If you own your home outright, you aren’t required to have homeowners’ insurance.

But as your house is almost certainly your biggest investment, unless you’re an eleven-time Powerball winner, I’d recommend purchasing and maintaining coverage.

Some of the various types of policies for homeowners are:

Dwelling insurance, which is primarily concerned with protecting your house from the foundation to roof, insuring you from, among other things, damage or destruction caused by wind, fire, or vandalism.
Personal property insurance, which is how you protect your belongings, including such things as appliances, clothing, and furniture.
Liability insurance, which protects you from, for example, when a delivery person trips over your hose and decides to sue you. A rule of thumb is that your liability insurance should be enough to cover an amount equal to anything you own that could be lost in the event of a lawsuit.

*Earthquake insurance is typically stand-alone insurance and separate from other types of homeowners insurance.

Umbrella Insurance Coverage

Every insurance policy has coverage limits, which means if you have saved and invested well, your insurance may not entirely protect all your assets, or cover all your liabilities, in the event of a lawsuit.

That’s where an umbrella policy comes in.

For the sake of example, let’s say that the worst happens, and someone is seriously injured or even dies on your property, and you are sued for $1,000,000.

If your homeowner’s coverage is capped at $700,000, you are responsible for the remaining $300,000 out of pocket.

In this scenario, an umbrella policy should cover the rest.

Renters Coverage

While many landlords require that you purchase renter’s insurance, it’s not mandated by law. Renter’s insurance policies are typically not expensive, running just a few hundred dollars a year, and my experience has been that they are well worth the cost.

The two most common occurrences when people tap into their rental insurance policies have to do with fire and theft.

Your landlord has insurance if you accidentally burn down the building, though you will still probably get sued. Generally, your landlord is on the hook for structural damage, unless the fire is your fault, and you (the tenant) are responsible for damage to your belongings, unless the fire is your landlord’s fault.

As for renter’s insurance, there is:

Personal property insurance, which covers the things that can be lost or stolen via fire or theft.
Renters’ liability insurance, which protects you when someone takes a fall in your apartment (and it’s your fault), or when you make a mistake and damage another tenant’s personal property.

Car Insurance

Apart from New Hampshire, each state requires that you purchase auto insurance. (New Hampshire requires that you have sufficient means to pay for damages in the event of an accident.)

Liability insurance pays for damages and injuries (up to the amount of your coverage) if you’re the cause of an accident. In many circumstances, it also pays for your legal costs should you get sued.
Uninsured driver coverage, more commonly referred to as uninsured motorist coverage, is insurance you purchase in case an uninsured scofflaw hits you on the road.
Personal injury protection insurance is where it starts getting a little confusing. Also known as PIP, this is insurance that, no matter which party is responsible for the wreck, ensures that your costs are covered. PIP is a bit more of an umbrella level of coverage, in that it may pay for things like lost wages, rehabilitation, and childcare. Some states require this type of coverage, while it’s not even available in others.
Comprehensive car insurance coverage indeed covers you in the event of an accident, but it’s also likely to protect you if your car gets stolen, vandalized, or damaged in a flood or fire. (If your car is financed or leased, you’re going to be required to purchase comprehensive coverage.)

Life Insurance

Be it as an investment product, or as a hedge against the loss of income, life insurance is where things become more complex.

First, to make certain you are not being sold something that isn’t appropriate for you, speak to a 100% fiduciary advisor before you purchase any type of life insurance or annuity. That’s because, while annuities may be a reasonable choice for some people, and while there are of course exceptions, certain professions make their income entirely via the commissions they reap by selling annuities to anyone who will buy one.

And yet, conversely, life insurance coverage is an important protection for those people whose family depends on them financially. Simply, due to loss of income, if your loved ones would suffer financially in the event of your demise, then you probably need life insurance.

As a flyover, life insurance policies typically fall into one of two primary silos: term or permanent.

Usually the most affordable life insurance, be it 10, 20, or 30 years, term life enables you to lock in a set premium rate for a pre-determined duration of time.

More costly than term, permanent life insurance may offer lifelong coverage, and include a death benefit and a cash value component.

While the specifics, coverage, costs, and benefits can vary substantially, permanent life contains the sub-categories of whole, universal, and variable life insurance.

Long-Term Care Insurance

I chose to touch upon long-term care here because it’s among the least understood types of insurance, and because health insurance is too complex and unwieldly to cover in this space.

If you reach age 65, you have a 70% chance of needing long-term care. ¹

So, what exactly is it?

Long-term care covers things that Medicare and regular health insurance typically do not, such as in-home care, adult daycare, and nursing home stays: which can cost around $9,000 a month.

From a cost perspective, the younger you are the cheaper a policy will be.

Unfortunately, due to the middling performance of the stock market (insurance carriers invest your premiums in the same markets you do), some long-term policyholders have seen their premiums skyrocket after they’ve made the commitment to purchase the insurance.

Simply, make certain you review the fine print of every insurance policy you’re considering purchasing with a fiduciary advisor before you take the plunge.

^{1 https://www.forbes.com/advisor/insurance/types-of-insurance-policies/}

Advisory services offered through Allworth Financial, a Registered Investment Advisor | Disclosures | Privacy Policy

Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Check the background of this firm on FINRA's BrokerCheck.

HMRN Insurance Agency, LLC license #0D34087

¹Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

² Retention Rate Source: Allworth Internal Data, FY 2022

³ The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.

⁴ As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration.

⁵ InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience.

⁶ 2021 Value of an Advisor Study / Russel Investments

⁷ Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

⁸USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

⁹NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

^✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

^✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

^†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Important Information

The information presented is for educational purposes only and is not intended to be a comprehensive analysis of the topics discussed. It should not be interpreted as personalized investment advice or relied upon as such.

Allworth Financial, LP (“Allworth”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of the information presented. While efforts are made to ensure the information’s accuracy, it is subject to change without notice. Allworth conducts a reasonable inquiry to determine that information provided by third party sources is reasonable, but cannot guarantee its accuracy or completeness. Opinions expressed are also subject to change without notice and should not be construed as investment advice.

The information is not intended to convey any implicit or explicit guarantee or sense of assurance that, if followed, any investment strategies referenced will produce a positive or desired outcome. All investments involve risk, including the potential loss of principal. There can be no assurance that any investment strategy or decision will achieve its intended objectives or result in a positive return. It is important to carefully consider your investment goals, risk tolerance, and seek professional advice before making any investment decisions.